GPSolo Magazine - September 2004

Labor and Employment Law

When are Employers Liable?

By Nancy R. Mansfield and Joan T. A. Gabel

In 1998, the Supreme Court decided two landmark cases supporting a trend toward a clearer standard for employers in sexual harassment cases. Both Burlington Industries, Inc. v. Ellerth and Faragher v. City of Boca Raton elucidated employers’ vicarious liability for their supervisors’ and managers’ sexual harassment. Such liability, however, is subject to an affirmative defense that states that (1) the employer promulgated an effective sexual harassment policy system and (2) the allegedly harassed employee failed to take advantage of that system. The Court clarified employer liability by holding that when a supervisor’s sexual harassment leads to a tangible job detriment, the affirmative defense is not available, resulting in strict liability. The Burlington and Faragher decisions emphasize employers’ obligations to deter sexual harassment in the workplace. Employers, their insurers, and their counsel should note the varying court trends concerning whether employers bear strict liability or whether the two-pronged affirmative defense applies.

The Burlington Court defines a tangible employment action as “a significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits.” In many cases, applying this definition to the facts has been noncontroversial. Equal Employment Opportunity Commission (EEOC) Guidance offers further assistance by providing examples, which include:

• hiring and firing;

• promotion and failure to promote;

• demotion;

• undesirable reassignment;

• a decision causing a significant change in benefits;

• compensation decisions; and

• work assignment.

Addressing the sufficiency of adverse employment action, the Tenth Circuit found that a change in benefits is a tangible employment action. In that case, the plaintiffs were loan officers whose salaries included both base pay and commissions for closed loans. When they refused their supervisor’s advances, the plaintiffs claimed that the supervisor refused to provide leads, training, and loan approval. The plaintiffs’ commissions declined as did their bonuses and salary. The court found that such behavior resulted in a tangible employment action. On the other hand, the Fifth Circuit recognized that not all actions taken against an employee rise to the level of tangible employment actions, finding that changes in work schedule and job duties in that case were not a significant change in employment status so as to constitute a tangible employment action.

The cases addressing the sufficiency of an employment action do not yet reveal specific parameters for what constitutes a tangible employment action. Mere inconvenience appears insufficient unless it affects the plaintiff’s income.

Another issue left unanswered post- Burlington/Faragher relates to whether courts should consider constructive discharge a tangible employment action. Courts have traditionally treated constructive discharge as an actual discharge—which is a tangible employment action. The Burlington Court explicitly stated that constructive discharge is a tangible employment action, but circuit courts that have addressed this issue are split. The Third Circuit has held that constructive discharge is a tangible employment action, finding that the employee’s resignation was a constructive discharge that constituted a tangible employment action, thereby barring the employer’s use of the affirmative defense. In direct opposition, the Second Circuit allowed an employer to assert the affirmative defense despite finding that the employer constructively discharged its employee. The court ruled that the requirement of a tangible employment action by a harassing supervisor only imposes employer liability, without the possibility of an affirmative defense, where the employer is implicated in the harm visited upon the employee by his supervisor. The court relied on the Supreme Court’s interpretation of the Restatement, as well as the Court’s definition of tangible employment action. The Court defined tangible employment action as “a significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits.” The Court omitted constructive discharge from its list of behaviors that constitute tangible employment actions.

Employers pursue the affirmative defense because success results in avoiding all liability. To make this argument, however, employers must meet their burden of proving the absence of tangible adverse employment action. The court must then determine whether the defense is satisfied. The affirmative defense has two prongs: The employer must exercise reasonable care to prevent and correct promptly any sexually harassing behavior, and the employer must show the plaintiff employee failed to reasonably take advantage of any preventive or corrective opportunities the employer provides or to avoid harm otherwise.

The employer’s obligation to prevent harassment largely rests on the implementation of an anti-discrimination policy. Many district and circuit courts have found that when an employer has (1) an anti-harassment policy, (2) an accompanying complaint procedure, and (3) evidence of reasonable efforts to investigate all sexual harassment grievances, those employers satisfy the first prong of the affirmative defense. Circuit courts also take into account whether:

• the employer distributed the anti-harassment policy;

• there are in-service training segments on sexual harassment;

• there are instructions on which individuals in the company the employees should speak with to relay possible harassment claims;

• there are restraining orders on behalf of the harassed employee; and

• the anti-harassment policies are disseminated in both English and Spanish.

To assist employers as they develop their policies, the EEOC provides the following examples of preventive measures:

• oral or written warning or reprimand;

• transfer or reassignment;

• demotion;

• reduction of wages;

• suspension;

• discharge;

• training or counseling of harasser to ensure that he or she understands why his or her conduct violated the employer’s anti-harassment policy; and

• monitoring of harasser to ensure that harassment stops.

The EEOC also provides the following examples of appropriately corrective behavior:

• restoration of leave taken because of the harassment;

• expungement of negative evaluation(s) in employee’s personnel file that arose from the harassment;

• reinstatement;

• apology by the harasser;

• monitoring treatment of employee to ensure that he or she is not subjected to retaliation by the harasser or others in the workplace because of the complaint; and

• correction of any other harm caused by the harassment (e.g., compensation for losses).

To use the affirmative defense successfully, the employer must show both that the company exercised reasonable care to prevent and promptly correct any sexually harassing behavior, and that the employee did not reasonably take advantage of any preventive or corrective opportunities. District and circuit courts have generally found that the employer will prevail if either (1) a reasonable person in the employee’s position would have come forward earlier or to a designated manager in order to prevent the harassment from becoming more severe or (2) the employee failed entirely to report the harassment.

The Second, Fifth, Sixth, and Ninth Circuits found that when an employee does not report harassment, the employee fails to take advantage of the employer’s preventive measures and his or her actions are unreasonable. The EEOC Guidance, however, justifies an employee’s failure to complain when the following exist: